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2001 BW 50



Q&A with CACI's Jack London
The defense contractor's CEO talks about growth through acquisitions and the prospect of more federal spending

For a defense contractor, CACI International (CACI ) does remarkably well. The Arlington (Va.) information-technology and services company is one of the best performers in the Standard & Poor's Small Cap 600 -- No. 3 this year -- and hasn't been plagued by negative earnings surprises, unlike so many Pentagon suppliers. Moreover, it's well positioned to take advantage of the Defense Dept.'s increased focus on information and communications systems in the ongoing war on terrorism.

CACI Chairman and CEO Jack London recently talked about the company's past performance and outlook with BusinessWeek Washington Correspondent Stan Crock, who covers the defense industry. Here are edited excerpts of their conversation:

Q: You've made 18 acquisitions since 1992. Will that continue?
A: Yes. Continued acquisitions are one part of our corporate business-development strategy. We will continue to make acquisitions in the areas where we have been growing over the last five years: the network-services area, the intelligence community, and information security.

Another area we're looking at is space support, overhead systems, the systems software application side, as opposed to hardware engineering. We're looking for acquisitions to move CACI into that market niche area, which we feel has some promise, but it's an area we have not been in. But the main thrust will continue to be the communications side, network systems.

Q: How have your acquisitions to date performed?
A: All have added value to what we already had. They've been done for cash. We've had very successful integration. There have been essentially no failures, but not all have brought down the chandeliers in terms of success.

Q: In the past, equity was cheaper than debt. Why are you using cash to finance deals?
We always look at aspects of the economics. Debt is simply cheaper than equity.

Q: Several companies in your niche have gone public recently or filed plans to do so. How will that affect the competitive landscape?
A: In general, we're in a competitive market. This market space has been a little bit thinned over the past five or six years. There's been some consolidation of companies. The business environment and defense issues post-September 11 certainly have focused a lot of attention on this sector. From a business standpoint, it's a natural evolution. There will be some enhanced competition from an investor perspective. From the business-development side, it won't be much different from what it has been.

Q: How will the increase in the defense budget help your business?
A: Most of our funding would probably be coming out of operations and maintenance. Research and development is a smaller part of our business. It's the overall federal information technology budget that we see as opening up opportunities. It's going to be up 10% over last year, to $52 billion. That business budget plan is more relevant in terms of our business-development interest.

We also have a number of contracts with the civilian side of government. About 26% of our business comes from non-Defense Dept. federal contracts, while 64% to 65% comes from Defense, and 8% to 10% comes from international or state and local.

Our largest single customer project is with the Justice Dept. We do a lot of work for them in litigation support. In the document-management arena, we prepare requirements of databases associated with lawsuits like the tobacco case, the A-12 aircraft cancellation, the Exxon Valdez oil spill, the Challenger explosion.

We build a data file of engineering reports, depositions, test reports -- all the documents associated with a case -- and put them in Oracle databases so the attorneys can draw down extracts from these files to develop motions and filings. The Justice Dept. accounts for 9% of total revenues.

MARCH 3, 2002

Edited by Beth Belton

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